"The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design."--F.A. Hayek

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18 October 2011

Whither Jobs?

Reason magazine has a good article up on what government action can be done to create jobs. It is a brief survey of writers, economists, professors and entrepreneurs and, Reason being a Libertarian joint, the answers all revolve around reducing government interference in the market place of employment (the lone exception being Bruce Bartlett whose snit over being unceremoniously dumped by conservatives after crapping on George W. Bush, a well-deserved crapping I might add, has led him to degenerate into a card-carrying, left-wing disciple of Lord Keynes).

My favorite contribution is from the inimitable Mike Munger from Duke University:

Separate Jobs from Health Care

Michael Munger

I win drinks in bars sometimes by betting on the answers to two questions. First, what nation in the world “lost” the most jobs between 1990 and 2005? Second, what nation in the world leads in the value of manufacturing products?

The answers are the U.S. and China, but not in that order. China lost by far the most manufacturing jobs between 1990 and 2005, and the U.S. still leads the next largest manufacturing economy by a full 25 percent.

Think about it: In 1990, a “factory” in China was a large shed with 1,200 workers with sewing machines, sitting beside a pile of patterns, cloth, and scraps. Today that factory is 100 times as productive, but it only has 30 employees tending modern and lightning fast machines.

The same thing has happened in the U.S., in industry after industry. As we increased our output, we “lost” jobs to increased productivity. We didn’t ship those jobs to China; China lost even more jobs than we did.

The difference is that China more than replaced its lost jobs with new jobs, in new industries. Until recently, the U.S. has always been able to do that, too. What has changed?

The problem is both obvious and hard to see: It’s health care costs. The U.S. has produced quite a few new service sector jobs, jobs at the lower end of the pay scale, jobs that don’t usually come with health benefits.

But those “good” jobs, the ones that the president is looking for? Health care costs have driven a wedge between what employers pay and what they get in terms of productivity. Wages for workers in many industries have been flat, or nearly flat, in real terms since 1990. But total compensation, especially health care costs on the best jobs, has increased at a rate of more than 3 percent per year on average.

Employers paying more, workers seeing no increase in take-home pay: a constantly increasing wedge being driven into job growth. More than all of our productivity growth has been sucked into the voracious maw of health care costs. Until we break the connection between jobs and health care, there is no way for the U.S. to begin to recover job growth.

Unfortunately, the fiasco of health care reform in 2009 made this problem worse, not better. The new law created a complex, expensive system with no cost controls. And since insurance cannot cost less than the care it covers, this implicit but very real tax on job creation is hamstringing the recovery.